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North Country Health Services announces management salary cuts

In response to its current financial challenges and impending cuts expected from the state's budget balancing, North Country Health Services of Bemidji today announced salary reductions for its management team. Effective immediately, the president and chief executive officer's salary is being reduced by 8.5 percent, vice presidents' salaries by 7 percent and directors' salaries by 5.5 percent.

"These are difficult decisions and the NCHS Board of Trustees commends our CEO, Jim Hanko, our five vice presidents, and the thirty directors for the sacrifice these pay cuts represent." said Kari Howe, chair of the NCHS Board of Trustees. "This is a dedicated team of people contributing an early step to keep as many healthcare services in the community as possible. It also underscores the seriousness of the economic crisis and the vulnerability of acute care hospitals and long-term skilled nursing facilities to the inadequate payments from government programs."

This is not the first time the CEO and vice presidents have had their compensation impacted. The CEO and vice presidents sustained a freeze in 2003, and Hanko, took a second voluntary freeze in 2005.

Hospitals across the country are struggling financially now with expenses well exceeding revenues. In Minnesota alone, over 1500 layoffs have occurred at hospitals in the past seven months. This trend highlights that healthcare is not recession proof. A number of factors have contributed to the current situation including:

--Lower than projected volumes,

--Payments from Medicare and Medicaid for hospital and skilled nursing services not keeping pace with what it costs to provide quality healthcare services and products,

--Increasing numbers of uninsured people adding to bad debt and charity care,

--Patients with high-deductible health plans not able to cover the costs of their new high deductible obligations.

Through the first five months of its current fiscal year, NCHS has incurred a loss of $1,070,300. Unfortunately, March is expected to show a further loss. NCHS is projecting a loss of 2 million dollars in operations through the end of its fiscal year, September 30th.

These salary adjustments will not completely make up for the financial losses experienced to date. And, the anticipated budget cuts from the state's legislative session will only compound the economic challenges that NCHS faces. The governor's second budget proposal, after federal stimulus dollars are taken into account, actually hurts hospitals like North Country more than the initial proposal.

"I appreciate the understanding of North Country's vice presidents and directors concerning the serious cuts in salary they are sustaining," said Hanko. In announcing the salary cuts, he noted to staff that, "the economic crises the nation and state find themselves confronting is not the fault of our community or region and certainly not you individually, and yet we, as a team, bear a disproportionate brunt of the solution. It is unfair this financial situation has to be met with such severe pay cuts and other measures."

Going forward, NCHS will continue to look at ways to streamline and realign its operations. It will focus on efforts to advocate for optimizing federal stimulus package funds, other federal matching dollars the state forfeits, protecting health insurance coverage for as many citizens as possible, and urging a balanced budget reduction strategy that doesn't inordinately impact hospitals. Although NCHS faces challenging times, it will not let care and its quality be unduly compromised.